"Regulators and Convergence:
Sorting out the Mess"

Network Insights Group workshop
convened by Professor Mark Armstrong

Dr Terry Cutler

Sydney 2 May 2000

A great topic for a workshop:

My particular interest in this topic is fuelled by my recent involvement in drafting Malaysia's convergence regulation, and its implementation, the National Bandwidth Inquiry, Digital broadcasting, and working with Internet start ups.

The topic for this session calls for attention to the big issues!

My working title becomes: "The mid-life crisis for regulators and Regulatory Institutions".

Key point:

Not "a mess", but a very predictable crisis of institutional adequacy in an era of step-function, binary change.

The taxomony of change processes

There is adaptive change (the processes and philosophies of continual improvement) and there is disruptive change (associated with discontinuities brought about by step-function, binary shifts in the environment). For the communications sector, this is an era of disruptive change.

The seminal, classic text for the Information Economy

Christensen's The Innovator's Dilemma: Why Technology Causes Great Firm to Fail. Harvard, 1997.

The regulatory dilemma

Why technology causes great regulators to stumble and fall.

Keyword:

Discontinuity. The Digital revolution, the global Information Economy, is about revolutionary, step-function change, not incremental evolution. Procrastination in the name of migration is both a cop-out, and is doomed to fail if invoked as a safety net. There is also no point in safety nets if the bodies are crashing to the ground elsewhere!

Real examples of market and technology discontinuity

... Polaroid versus digital camera ... Email versus facsimile ... Facsimile/email versus telex ((which, as we all recall peaked in Australia in 1985!) ... Mainframes versus personal computers ... Intelligent networks versus Internet ... Microsoft versus open-source software ... PCs versus WAP access devices/non PC access devices ... Public switched network versus broadband and packet switched services ... Digital broadcasting versus analogue television All such technology and market discontinuities create huge threats to regulatory comfort and certainty.

The perils for incumbents - whether companies or regulators.

  1. Customers (including regulatory customers) are not always right. This is the dilemma of mainstream versus leading edge (niche) indicators.
  2. The new threatens to cannibalise existing cashflows and disrupt established workflows.
  3. Investment and resourcing is usually too little, too late.
  4. Past experience, and norms, are not the expertise needed to respond to the new. These are hard lessons for regulators.

Practical examples of regulatory discontinuity.

... Interconnection (what, where, with whom). Per minute versus volume/grade of service. Wholesale versus retail. ... Digital content distribution and content regulation. ... Software and business process patents. ... The globalisation of regulation (eg. ICANN, WTO) and the undermining of regulatory sovereignty. ...

A must read for regulators.

John Braithwaite and Peter Drahos, Global business regulation, Cambridge 2000.

Issues and challenges arising from regulatory discontinuity.

  1. Disconnection from reality. While we talk about Internet "dog" years - the acceleration of normal time - government works in "fog" years and regulators work in "cog" years: normal time slowed down. Cutler's Law: The greater the time difference, the greater the danger of regulatory harm.
  2. The myth of technology transparency. We need to go back to the first principles of regulatory objects, not to second order regulatory principles.
  3. Letting go of old solutions: no carry forward. Do not legitimise "blinkers" or custom as enduring wisdom.
  4. Accept the reality of the globalisation of business regulation, and examine ways to participate. Push back is futile.
  5. Keep the horse in front of the cart: Next generation policy must pull next generation regulation. Cartesian regulators ("I regulate therefore I am") have a vested interest in regulatory drag.

The bottom line: aphorisms for a new regulatory era.

You can't fix cogs in a fog. And it's hard to corral feral dogs in a fog.